Economic Adjustment and Nutrition

As a result of economic recession and the debt crisis, since the
early 1980s a large number of countries have undertaken major shifts in
economic policy. Often these adjustments were precipitated by
balance-of-payments crises, and used large loans from the IMF. They usually
meant substantial reductions in public spending, and price alterations. The
poor, especially in the poorest countries, were particularly vulnerable to loss
of income and access to public services - to the extent that there were
increasing fears that their nutrition levels were being seriously affected. Some
scattered evidence showed that economic shifts coincided with nutritional
deterioration - for example in Lesotho as shown here - and indeed the necessity
for knowing more about recent nutritional trends gave impetus to setting up an
inter-agency programme in food and nutritional surveillance.

A symposium on Economic Recession, Adjustment Policies and
Nutrition was held at the SCN annual session in Tokyo in April 1986. This
marked a start of new efforts to draw attention to the effects of adjustment
policies on the nutrition of the poor, and to argue for their protection in
times of economic stress. The SCN issued a statement that was put out by the
ACC, as follows.

Lesotho: Malnutrition in clinics
(top) and economic indicators.

What is Structural Adjustment?

Development efforts in many low income countries have been
hampered since the early 1980s by economic recession and, more recently,
by a sharp downturn in commodity prices and a decline in capital flows. The IMF
and the World Bank have advised many developing countries to remedy their severe
balance-of-payments problems by adopting economic structural adjustment
programmes. These programmes consist of measures to restrain fiscal deficits and
monetary expansion, reduce government spending and revenues, fix more realistic
currency exchange rates and introduce incentives. According to the World Bank,
adjustment programmes benefit the poor by eliminating policy-induced distortions
which limit the mobility of resources, suppress agricultural prices and
subsidize capital. However, while adjustment operations clearly benefit
the poor over the long term, there may be transitional costs: small scale
farmers may be affected by increases in prices, while landless agricultural
labourers and urban workers may have to pay more for food. Children from poor
households may also be compromised by reduced government funding for health and
education. Most of these social costs are transitional, the World Bank says,
incurred as aggregate demand is brought in line with aggregate supply and as
some workers become temporarily unemployed.

Arising from a symposium held at its twelfth session at
the United Nations University in Tokyo (7-8 April 1986), the ACC Sub-Committee
on Nutrition draws the following to the attention of the ACC:

(a) The economic recession has had a detrimental
impact on nutrition. Certain adjustment policies, particularly those aimed at
redressing balance-of-payments problems, have often aggravated the situation as
an undesirable side-effect. This outcome is not inevitable if appropriate
measures are taken, as has been shown in several cases.

(b) Reductions in public expenditure on health, education and
other basic services, and some alterations in price structures, coupled with
unemployment and falling incomes, have compounded the negative effects on
nutrition. The poor have been the most affected. Stable or even improving trends
in malnutrition and child mortality rates are being reversed. This adverse
situation affects a countrys human capital and long-term economic
development.

(c) The ACC Sub-Committee on Nutrition requests ACC to recommend
that nutrition objectives for the poor form an explicit part of adjustment
policies and programmes of Governments and member organizations, including
special compensatory measures where appropriate, with a view to providing an
adequate level of nutrition for vulnerable groups. Some countries and
organizations of the United Nations system have recently given prominence to
these approaches. [Source: Report of ACC/SCN 12th Session]

IMF Speech

Concern for the social effects of adjustment mounted during 1986
and 1987. In an important speech at the U.N. in Geneva in July 1986, M. de
Larosiere, Managing Director of the IMF, emphasized the importance of
safeguarding human needs in times of adjustment. His speech has been widely
circulated, and is worth quoting at some length:

Programmes of adjustment cannot be effective
unless they command the support of governments and of public opinion. Yet this
support will be progressively harder to maintain the longer adjustment continues
without some pay-off in terms of growth and while human conditions are
deteriorating. Likewise, it is hard to visualize how a viable external position
can be achieved if large segments of the work force lack the vocational skills -
or even worse, the basic nutritional and health standards - to produce goods
that are competitive in world markets. Human capital is after all the most
important factor of production in developing and industrial countries alike.

But the fact that adjustment need not conflict with growth
and protection of basic human needs does not mean either that the latter
automatically result from the former. No. The extent to which adjustment is
compatible with growth and with an improvement in living standards depends in
large part on what form that adjustment takes. Adjustment that takes the form of
increases in exports, savings, investments and economic efficiency will clearly
be more supportive of growth than that which relies on cuts in investment and in
imports. Similarly, adjustment that pays attention to the health, nutritional
and educational requirements of the most vulnerable groups is going to protect
the human condition better than adjustment that ignores them.

This means, in turn, that the authorities will have to be
concerned not only with if they close the fiscal deficit but also with how they
do so. For example, safeguarding human needs may imply that employment in
overstaffed and loss-making public enterprises or defense spending be reduced in
preference to cutting an accelerated immunization and health care programme for
children. Similarly, safeguarding human needs may imply that credit flows be
managed so that small-scale producers are not crowded out by large enterprises
and the public sector.

The forms of adjustment that are most conducive to growth
and to protection of human needs will not emerge by accident. They have to be
encouraged by an appropriate set of incentives and policies. They will also
require political courage.

M. de Larosiere,Managing Director of the I.M.F.ECOSOC,
July 4, 1986

Adjustment With a Human Face

UNICEF has been pushing for greater attention to the
people-oppressing features of adjustment policy for some years.
Recently, the first volume of a major study was published, edited by senior
UNICEF staff. The book, subtitled Protecting the Vulnerable and Promoting
Growth (see review in the Publications section), gives considerable detail
of policy options, overall and in different sectors. UNICEFs alternative
strategy combines the basic elements of adjustment with equal concern for
promoting growth and protecting the vulnerable. The six main policy components
of adjustment with a human face are more expansionary economic
policies, aimed at sustaining levels of output and requiring larger amounts of
medium-term external finance; policies that influence the allocation of income
and resources (meso policies) within a given macro policy package -
to reinforce the expansionary approach and secure priority use of resources to
fulfill the needs of the vulnerable; restructuring within the productive sector
to strengthen employment and income-generating activities, focussing especially
on small farmers and informal producers; policies to improve the equity and
efficiency of the social sector by improving the targeting of interventions and
their cost effectiveness: compensatory programmes to protect basic health and
nutrition of low-income people before resumed economic growth enables them to
meet their own needs; and monitoring of the human situation, especially living
standards, health and nutrition.

Meanwhile, the World Bank, which has provided structural
adjustment loans to developing countries since the early 1980s, has been
developing new approaches for protecting the poor during the adjustment phase.
The Bank saw a need to address the social costs of adjustment as part of its
adjustment loans and other operations, particularly by improving the
effectiveness and poverty orientation of social spending in health and
education. In fiscal 1986, about one third of World Bank loans went to
programmes for agriculture, health, primary education, urban development and
nutrition. In African countries implementing adjustment measures, 45 percent of
lending was directed to such programmes, compared to an average of 28 percent
for the whole region. Another World Bank priority is to develop effective and
targeted compensatory programmes for nutrition and employment in coordination
with other agencies and NGOs. Following a joint consultation on food
aid for structural adjustment in December 1986. Bank and WFP staff began
identifying countries undergoing adjustment where increased collaboration might
prove particularly fruitful. The Bank is also co-operating with other agencies
such as ILO in employment schemes for displaced workers and with NGOs on
poverty relief programmes. The case for special attention to nutritional
objectives in adjustment loans has been articulated within the World Bank - and
we reproduce an extract from a position paper on this topic below.

Ministerial Session

In May 1987, ILO, UNICEF and WFC met in Rome for a consultation
on the impact of economic recession on nutritional levels. In a report to
WFCs 13th Ministerial Session in Beijing in June, 1987, the consultation
reported a growing convergence of views on adjustment. There
is broadly based agreement that low income countries will be able to
successfully undertake adjustments only if the trends of declining or negative
capital flows are reversed. They called for special attention to the needs
of the poor and hungry, especially during the adjustment process. The
Ministerial Session, attended by representatives from 34 countries, found that
the issues surrounding structural adjustment were complex. However,
protection of food and nutrition needs should be a key element in the objectives
of adjustment.

-Through effects on household income and purchasing
power, economic adjustment can have a nutritionally negative impact on those
poor people already living on the margin. Loans specifically addressed to
nutrition can offer a way to carry out tightly targeted, compensatory programmes
to cushion the shock on the poor.

-In many countries current expenditures that impinge on
nutrition, particularly consumer food price subsidies, are both sizeable and
inefficient. Adjustment loans in the area of nutrition can offer a reform
instrument to decrease costs of such expenditures while increasing their
nutrition impact.

-Reforms and investments in such other areas as education,
worker productivity, health and family planning will be limited in their success
if a basic threshold of nutrition is not ensured. These adjustment loans can
offer a way to buttress objectives of other Bank lending
operations.

Such loans should be set up to increase the
cost-effectiveness of government expenditures related to nutrition. A common
area of reform would be consumer food price subsidies. Other examples are
feeding programs for workers in industry and for school children of all ages.
Assistance in taking advantage of opportunities for food aid should be provided.
As it becomes increasingly clear that food aid is not merely a temporary
phenomenon in some countries, the need arises to take better advantage of (and
use more effectively) this important additive but non-fungible resource. Many
countries are limited by absorptive capacity.

Developing national institutional abilities to address
nutrition concerns is also of crucial importance. Many nations lack the
capability to deliver nutrition services effectively. Numerous programmes, run
by both government and non-governmental organizations, often overlap or, worse,
sometimes run counter to each other. Also needed is the capability for
monitoring the nutrition status of vulnerable groups. This would aid both in
institution building for nutrition and in Bank evaluation of adjustment
operations and their social impact...

In order to develop adjustment loans, an understanding of
current programmes in the country, at both the governmental and non-governmental
levels, and the institutional framework for these programmes is necessary. An
understanding of how a particular adjustment package might affect food
consumption and nutrition: an appropriate analytical framework, information on
nutrition status, food consumption or household expenditure of at-risk families,
and data on price and income elasticities. Estimations of the effects of the
intended adjustment on nutrition and also as a means to measure it as adjustment
unfolds.

The loans would need to include targeted compensatory
measures to offset negative effects. Strategies should be developed to build
institutional capacity in nutrition and food planning and delivery and how to
take better advantage of food
aid.